Dell Technologies Inc. gave its shareholders a welcome dose of good news today, reporting a surprise increase in fiscal 2024 fourth-quarter earnings and edging out analysts’ revenue expectations.

The company reaffirmed earlier forecasts that it expects revenue growth to resume in the second half of its fiscal 2025, which begins in August. Investors celebrated by sending the stock up more than 16% after-hours. Update: On Friday, shares were rising about 25%.

Adjusted earnings for the quarter ended Feb. 2 rose 22% from a year ago, to $2.20 a share, beating analyst estimates of a decline to $1.72. Revenue fell 11%, to $22.32 billion, but still beat $22.17 billion estimates. Dell’s revenue has has declined for the past six quarters sequentially.

Full-year operating income was $5.2 billion, and cash flow from operations was $8.7 billion. Dell’s gross margin grew to 23.8% from 23% a year earlier, while operating expenses declined by nearly $1 billion.

Rosy outlook

Prosperity is just around the corner, executives told analysts on the company’s conference call. They were particularly bullish on the company’s artificial intelligence-enabled PC and server product lines, saying the company is committed to having the broadest portfolio of AI PCs in the industry.

Dell Chief Operating Officer Jeff Clarke (pictured) said orders for AI-optimized servers increased 40% sequentially, and the backlog stood at $2.9 billion at year’s end. “We’re driving a significant share of AI server growth,” he said. “We are optimistic about 2025 and expect a return to growth above our long-term framework.”

Growth in AI servers will also lift Dell’s storage business, Clarke asserted. “A lot of training is being done with rich data sets, and as we move into enterprise, that lends itself to a growing storage opportunity for us,” he said. “We’ve increased performance around latency-sensitive workloads, which is aligned with needs in the enterprise as customers move from training to inference.”

Steve McDowell, principal analyst and founding partner at NAND Research LLC, also saw good news in the storage results. “It’s showing solid growth after a couple of lackluster quarters,” he said. “Some of this is due to some long-awaited product refreshes, but there’s certainly also increased pull from new AI applications.”

Enterprise sales bouncing back

The Infrastructure Solutions Group, which primarily serves enterprise customers, reported fourth-quarter revenue of $9.3 billion, down 6% year-over-year but up 10% sequentially. The company said that growth in servers and networking was driven primarily by AI-optimized servers. Storage revenue grew 16% sequentially. For the full year, ISG revenue fell 12% from last year, to $33.9 billion.

Revenue in the Client Solutions Group, which sells PCs and end-user devices, was $11.7 billion, down 5% sequentially and 12% year-over-year.

Dell expects fiscal first-quarter revenue to come in between $21 billion and $22 billion, up 3%. “The five-quarter pipeline grew this quarter; we expect to ship more in Q1 than we shipped in Q4,” Clarke said. “Servers have grown sequentially for the past three quarters, and the pipeline continues to improve.”

In a conference call with analysts, executives emphasized sequential rather than annual comparisons to highlight what they said is a steady return to growth. That’s appropriate, McDowell said.

“Dell’s overall revenue numbers for ISG are down year-over-year, but given where we are in the macro environment, that’s really the wrong comparison,” he said. “We need to look sequentially, where they’re up 10%, and you also have to look at where the growth is, which is in high-dollar AI servers.”

Fundamentals sound

“Dell is not growing. That’s the bad news but that was expected,” said Dave Vellante, SiliconANGLE co-founder and Chief Analyst of theCUBE Research, SiliconANGLE’s sister company. On the plus side, he added, “The company’s cash flow was strong for the year, and its good liquidity, operating efficiency, cash flow and capital allocation are why the stock has performed so well.”

Vellante said spending trends indicate that a return to growth will likely happen in the second half of the year and that Dell could get a boost from a line of servers it’s building in partnership with Nvidia Corp. “While Nvidia is making most of the margin on those systems, a more meaningful mix shift to AI servers would be a real positive for Dell’s margins going forward,” he said.

McDowell said earnings reports from Dell and Lenovo Group Ltd. belie the conventional wisdom that AI model training will all happen in the cloud. “Dell highlighted a 40% sequential increase in AI-optimized server orders; that’s a significant number,” he said. ‘This big uptick from Dell shows that [graphics processing unit] supply constraints might be easing, which is goodness for the overall industry.”

Photo: SiliconANGLE